ET Rising Insurance Premiums Widen the Income Gap

by Lesley Politi on April 15, 2009

Rising health care costs – and the steps employers are taking to cope with them – are worsening the income gap in the U.S., according to McKinsey Global Institute researchers.

Rising health-insurance premiums are accounting for a disproportionate share of the lowest-paid employees’ compensation compared to higher-income employees, McKinsey’s Byron G. Auguste, Martha Laboissière, and Lenny T. Mendonca concluded in their recent article.

The researchers found that the ratio of employer-paid health-insurance premiums to total household income was 20% for those who were insured in the lowest-income group. Of that group, which earned $14,800 a year on average, only 22% were covered at all.

That 20% stands in stark contrast to the 3.3% health – insurance – premium – to – income ratio for the highest income group, which averaged $210,000 annually. Nine out of 10 of those workers are insured.

The disparities in income and coverage are also reaching workers’ out-of-pocket expenses. As the highest-earners’ salaries increased over the years, so did their health care benefits and the types of services that were covered. As a result they paid very few additional health – care costs. A similar trend took place with higher-middle and lower-middle income groups, but at a slower rate, meaning their out of pocket costs grew a bit. As for the lowest income group, “incomes have been stagnant, and their employers are less likely to pay for their health insurance. This group is finding any health care difficult, if not impossible, to afford,” the researchers concluded.

Using the most recent data from 1966 to 2005, the researchers noted that health insurance premiums grew 5% a year. And as premiums rose, enrollment in the employer-sponsored plans has dropped or remained the same, especially in regard to the middle class. “Some employers are offering more comprehensive benefits to attract and retain better workers. At the same time, some companies have been prompted to withdraw the offer of employee health care benefits altogether; others have had to limit the number of employees eligible for benefits…Put another way, employers are spending more on health care per employee but for fewer employees.”


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